Chapter 3 Infrastructure Investment Trusts – Corporate Funding and Listing in Stock Exchange ICSI Study Material is designed strictly as per the latest syllabus and exam pattern.
Infrastructure Investment Trusts – Corporate Funding & Listing in Stock Exchange Study Material
Question 1.
What guidelines have been issued by SEBI for public issue of units of InvITS ? Describe them. (Dec 2018, 7 marks)
Answer:
The followings are the guidelines issued by SEBI for public issue of units of InvITs;-
The Investment Manager on behalf of the InvIT, shall appoint one or more merchant bankers, at least one whom shall be a lead merchant banker and shall also appoint other intermediaries, in consultation with the lead merchant banker, to carry out the obligations relating to the issue.
- After receipt of comments from public and observations from SEBI, the draft offer document shall be filed with SEBI and the designated stock exchanges.
- In an issue made through the book building process or otherwise, the allocation in the public issue shall be as follows:
(a) not more than 75% to Institutional Investors
(b) not less than 25% to other inventors
Investment manager on behalf of the InvIT, may allocate upto 60% of the portion available for allocation to Institutional Investors to anchor investors.
- The Investment Manager on behalf of the InvIT, shall deposit, before the opening of subscription, and keep deposited with the stock exchange (s), an amount calculated at the rate of 0.5% of the amount of units offered for subscription to the public or ₹ 5 crore, whichever is lower.
- A public issue shall be kept open for at least three working days but not more than thirty days.
- Where the InvIT desires to have the issue underwritten, it shall appoint the underwriters in accordance with SEBI (Underwriters) Regulations, 1993.
- The investment manager on behalf of the InvIT, may determine the price of units in consultation with the lead merchant banker or through the book building process.
- In all issues, the InvIT shall accept bids including using Application Supported by Blocked Amount (ASBA) facility, if so opted.
- On receipt of the sum payable on application, the investment manager on behalf of the InvIT shall allot the units to the applicants.
- Records related to allocation process shall be maintained by the lead book runner and the book runner/s and other intermediaries associated in the book building process shall also maintain records of the book building prices.
- The lead merchant banker shall submit the following post-issue reports to SEBI:
(a) Initial post issue report, within three working days of closure of the issue.
(b) Final post issue report, within fifteen days of the date of finalization of basis of allotment of within fifteen days of refund of money in case of failure of issue.
- The lead merchant banker shall submit a due diligence certificate along with the final post issue report.
- Any public communication including advertisement, publicity material, research reports, etc, concerned with the issue shall not contain any matter extraneous to the contents of the offer document.
- The post-issue lead merchant banker shall regularly monitor redressal of investor grievances relating to post-issue activities such as allotment, refund, etc.
The post-issue merchant banker shall ensure that advertisement giving details relating to oversubscription, basis of allotment, number, value and percentage of all applications, number, value and percentage of successful allottees for all applications, date of completion of dispatch of refund orders or instructions to Self Certified Syndicate Banks by the Registrar, date of dispatch of certificates and date of filing of listing application, etc is released within ten days from the date of completion of the above activities on the website of the InvIT, sponsor, investment manager, stock exchanges and in all the newspapers in which the pre issue advertisement was released, if applicable.
The lead merchant bankers shall exercise due diligence and satisfy himself about all the aspects of the issue including the veracity and adequacy of disclosure in the offer documents.
The lead merchant banker shall ensure that the information contained in the offer document and the particulars as per audited financial statements in the offer document are not more than six months old from the issue opening date.
Question 2.
Explain the circumstances under which an Investment Manager of an Infrastructure Investment Trust (InVIT) can apply to SEBI and the designated Stock Exchange for delisting of its units. (Dec 2019, 5 marks)
Answer:
The investment manager shall apply for delisting of units of the InvIT to SEBI and the designated stock exchanges if,-
- the public holding falls below the specified limit under the InvIT Regulations.
- the number of unit holders of the InvIT falls below the limit as prescribed in the InvIT Regulations.
- if there are no projects or assets remaining under the InvIT for a period exceeding six months and InvIT does not propose to invest in any project in future. The period may be extended by further 6 months, with the approval of unit holders
- SEBI or the designated stock exchanges require such delisting for violation of the listing agreement or these regulations or the Act.
- the sponsor(s) or trustee requests such delisting and such request has been approved by unit holders in accordance with these regulations.
- unit holders apply for such delisting in accordance with these regulations.
- SEBI or the designated stock exchanges require such delisting in the interest of the unit holders.
Question 3.
Explain the provisions relating to maintenance of records by an investment manager pertaining to the activity of the InvIT. (Dec 2020, 5 marks)
Answer:
The investment manager shall maintain records pertaining to the activity of the InvIT, wherever applicable, including:
(a) all investments or divestments of the InvIT and documents supporting the same including rationale for such investments or divestments;
(b) agreements entered into by the InvIT or on behalf of the InvIT;
(c) documents relating to appointment of persons;
(d) insurance policies for infrastructure assets;
(e) investment management agreement;
(f) distributions declared and made to the unit holders;
(g) disclosures and periodical reporting made to the trustee, SEBI, unit holders and the designated stock exchanges including annual reports, half yearly reports, etc.;
(h) valuation reports including methodology of valuation;
(i) books of accounts and financial statements;
(j) audit reports;
(k) reports relating to activities of the InvIT placed before the board of directors of the investment manager;
(l) unit holders’ grievances and actions taken thereon including copies of correspondences made with the unit holder and SEBI, if any;
(m) any other material documents.
Question 4.
Enumerate the rules for distribution of cash flows by lnvlT. (Aug 2021, 5 marks)
Answer:
With respect to distributions made by the InvIT and the Holding company (Holdco) and/or SPy,
(i) not less than 90% of net distributable cash flows of the SPV shall be distributed to the lnvlT/ Holdco In proportion of its holding in the SPV subject to applicable provisions in Companies Act, 2013 or Limited Liability Partnership Act, 2008;
(ii) not less than 90 % of net distributable cash flows of the InvIT shall be distributed to the unit holders;
(iii) such distributions shall be declared and made not less than once every six months in every financial year in case of publicly offered InvITs and not less than once every year in case of privately placed InvITs and shall be made not later than 15 days from the date of such declaration;
(iv) subject to above condition, such distribution shall be in the manner as mentioned in the offer document or placement memorandum.
Important Definition [Regulation 2]
Question 5.
Define the important terms used in SEBI Infrastructure Investment Trusts) Regulations, 2014.
Answer:
“InvIT’ or Infrastructure Investment Trust (Reg. 2)
“InviT” or “Infrastructure Investment Trust” shall mean the trust registered as such under these regulations i.e. SEBI (Infrastructure Investment Trusts) Regulations, 2014.
InvIT assets [Reg. 2]
“invIT assets” means assets owned by the InvIT, whether directly or through a holdco and/or SPV, and includes all rights, interests and benefits arising from and incidental to ownership of such assets.
Investment Manager [Reg. 2]
“Investment Manager” means a company or LLP or body corporate which manages assets and investments of the lnvlT and undertakes activities of the InviT as specified under regulation 1o.
“SPV”
Or
“Special Purpose Vehicle” [Reg. 2]
‘SPy” Or “Special Purpose Vehicle’ means any company or LLP,—
in which either the InviT or the holdco holds or proposes to hold controlling interest and not less than 51% of the equity share capital or interest. However, in case of PPP projects where such acquiring or holding is disallowed by government or regulatory provisions under the concession agreement or such other agreement,
this clause shall not apply and shall be apply subject to provisions under proviso to sub-regulation (3) of Regulation 12.
- which holds not less than 90% of its assets directly in infrastructure projects and does not invest in other SPVs; and
- which is not engaged in any other activity other than activities pertaining to and incidental to the underlying infrastructure projects.
Registration and eligibility for registration [Regulation 3, 4, 5 & 6]:
Question 6.
Explain the registration and eligbility for registration of invIT per SEBI (InvIT) Regulations, 2014.
Answer:
(I) Mandatory Registration of infrastructure Investment Trust [Regulation 3]
(a) Mandatory Registration: No person shall act as an InvIT unless it has obtained a certificate of registration from the SEBI under these regulations.
(b) Application by Sponsor: An application for grant of certificate of registration as InviT shall be made by the sponsor on behalf of the trust in such form and in such a manner as prescribed in these regulations.
(II) Eligibility Criteria for registration [Regulation 4]
For the purpose of the grant of certificate to an applicant, the SEBI shall consider all matters relevant to the activities as an InvIT. Without prejudice to the generality of the foregoing provisions, the SEBI shall consider the following, mandatory requirements namely.—
(a) Applicant: Applicant must be a sponsor on the behalf of Trust and the Trust deed must be duly registered in India under the provisions of the Registration Act, 1908 containing the main objective as undertaking activity of REIT in accordance with the set Regulations.
(b) Sponsor: There are not more than 3 sponsors. Each sponsor must have:
- Net worth of not less than 100 Crores if it is a body corporate or a company; or
- Net tangible assets of value not less than 100 crore in case it is a limited liability partnership.
- On a collective basis and have not less than 5 years’ experience in the real estate industry on an individual basis.
- Sound track record in development of infrastructure or fund management in the infrastructure sector,
(c) Investment Manager : The Investment Manager has:-
- Net worth of not less than rupees 10 crore if the investment manager is a body corporate or a company or
- Net tangible assets of value not less than 10 crore rupees in case the investment manager is a limited liability partnership.
- Not less than 5 years’ experience in fund management or advisory services or development in the infrastructure sector.
- Not less than 2 employees who have at least 5 years’ experience each, In fund management or advisory services or development in the infrastructure sector.
- Not less than one employee who has at least 5 years’ experience in the relevant subsector (s) in which the InvIT has invested or poposes to invest.
- Not less than half of its directors in case of a company or members of the governing board in case of an LLP as independent and not directors or members of the governing board of another InvIT.
- An office in India from where the operations pertaining to the InvIT is proposed to be conducted.
- Entered into an investment management agreement with the trustee which provides for the responsibilities of the investment manager in accordance with these regulations.
(d) Trustee: It should be registered with SEBI under SEBI(Debenture Trustees) Regulations, 1993; not an associate of the sponsor/manager and the trustee has such wherewithal with respect to infrastructure, personnel, etc. to the satisfaction of SEBI and in accordance with circulars or guidelines as may be specified by SEBI.
(e) The project manager has been identified and shall be appointed in terms of the project implementation! management agreement. However, the project implementation agreement/ management agreement shall be submitted along with the draft offer document/ or the placement memorandum.
(f) No unit holder of the InvIT enjoys preferential voting or any other rights over another unit holder.
(g) There shall not be multiple classes of units of InviTs.
(h) The applicant has clearly described at the time of registration, details pertaining to proposed activities of the InvIT.
(j) The applicant, sponsor(s), investment manager, project manager(s) and trustee are fit and proper persons based on the criteria as specified in SEBI(Intermediaries) Regulations, 2008.
(k) Whether any previous application for grant of certificate made by the applicant or any related party has been rejected by the SEBI.
(III) Furnishing of further InformatIon [Regulation 5]:
The Board may require the applicant to furnish any such information or clarification as may be required by it for the purpose of processing of the application.
(IV) Procedure for grant of certificate [Regulation 6]:
After satisfaction the Board will grant certificate of registration in Form B under Schedule L
Conditions of certificate [Regulations 7]
Question 7.
What are the conditions for grant of certificate by SEBI under this regulations?
Answer:
The certificate granted under these regulations shall, inter-alia, be subject to the following conditions,:
(a) the InvIT shall abide by the provisions of the Act and these regulations;
(b) the InvIT shall forthwith inform the Board in writing, if any information or particulars previously submitted to the Board are found to be false or misleading in any material particular or if there is any material change in
the information already submitted;
Conditions for issue and Allotment of units [Regulations 14]
Question 8.
What are the conditions for issue and allotment of units by InvIT under SEBI (InvIT) Regulations 2014?
Answer:
1. No initial offer of units by an InvIT shall be made unless,-
- The InvIT is registered with SEBI under these regulations;
- The value of the assets held by the InvIT is not less than rupees five hundred crore.
- The offer size is not less than rupees two hundred fifty crore.
2. The minimum offer and allotment to public through an offer document/placement memorandum shall be,:
- atleast 25% of the total outstanding units of the InvIT, if the post issue capital of the InvIT calculated at offer price is less than ₹ 1,600 crores;
- of the value of atleast ₹ 400 crores, if the post issue capital of the InvIT calculated at offer price is equal to or more than rupees one thousand six hundred crore and less than rupees four thousand crore;
- atleast ten percent of the total outstanding units of the InvIT, if the post issue capital of the InvIT calculated at offer price is equal to or more than rupees four thousand crore.
3. If the InvIT, raises funds by way of private placement:
- it shall do it through a placement memorandum;
- from qualified institutional buyers and body corporate only, whether Indian or foreign. However, in case of foreign investors, such investment shall be subject to guidelines as may be specified by RBI and the government from time to time;
- with minimum investment from any investor of rupees one crore; from not less than 5 and not more than 1000 investors.
- shall file a placement memorandum with SEBI along with the specified fee, atleast 5 days prior to opening of the issue.
However, such opening of the issue shall not be at a date later than 3 months from the receipt of in-principle approval for listing, from exchange(s).
4. If the InvIT raises funds by public issue InvITs:
it shall be by way of initial public offer;
any subsequent issue of units after initial public offer may be by way of follow-on offer, preferential allotment, qualified institutional placement, rights issue, bonus issue, offer for sale or any other mechanism and in the manner as may be specified by SEBI;
minimum subscription from any investor in initial and follow-on offer shall be ten lakh rupees;
prior to initial public offer and follow-on offer, the merchant banker shall file the draft offer document along with the fee as specified in Schedule II, with the designated stock exchange(s) and SEBI not less than thirty working days before filing the offer document with the and SEBI;
the draft offer document filed with SEBI shall be made public, for comments, if any, to be submitted to SEBI, within a period of at least ten days, by hosting it on the websites of SEBI, designated stock exchanges and merchant bankers associated with the issue for a period of not less than twenty one days.
SEBI may communicate its comments to the lead merchant banker and, in the interest of investors, may require the lead merchant banker to carry out such modifications in the draft offer document as it deems fit;
the lead merchant banker shall ensure that all comments received from SEBI on the draft offer document are suitably addressed prior to the filing of the offer document with the designated stock exchanges;
in case no observations are issued by SEBI in the draft offer document within twenty one working days from the date of receipt of satisfactory reply from the lead merchant bankers or manager, the InvIT may file the offer document or follow on offer document with SEBI and the exchange(s);
- the draft and offer document shall be accompanied by a due diligence certificate signed by the lead merchant banker;
- the offer document shall be filed with the designated stock exchanges and SEBI not less than five working days before opening of the offer;
the InvIT may open the initial public offer or follow-on offer or rights issue within a period of not more than one year from the date of issuance of observations by SEBI. However, if the initial public offer or follow-on offer or rights issue is not made within the prescribed time period, a fresh draft offer document shall be filed.
the InvIT may invite for subscriptions and allot units to any person, whether resident or foreign. However, in case of foreign investors, such investment shall be subject to guidelines as may be specified by RBI and the government from time to time;
- the application for subscription shall be accompanied by a statement containing the abridged version of the offer document detailing the risk factors and summary of the terms of issue;
- initial public offer and follow-on offer shall not be open for subscription for a period of more than thirty days;
- in case of over-subscriptions, the. InvIT shall allot units to the applicants on a proportionate basis rounded off to the nearest integer subject to minimum subscription amount per subscriber as discussed above;
- the InvIT shall allot units or refund application money, as the case may be, within twelve working days from the date of closing of the issue;
- the InvIT shall issue units in only in dematerialized form to all the applicants;
- the price of InvIT units issued by way of public issue shall be determined through the book building process or any other process in accordance with the guidelines issued by SEBI and in the manner as may be specified by SEBI;
- the InvIT shall refund money,
(a) all applicants in case it fails to collect subscription of atleast 90% of the fresh issue size as specified in the final offer document;
(b) applicants to the extent of oversubscription in case the moneys received is in excess of the extent of oversubscription as specified in the final offer document, money shall be refunded to applicants to the extent of the oversubscription;
(c) all applicants in case the number of subscribers to the initial public offer forming part of the public is less than 20.
If the investment manager fails to allot or list the units or refund the money within the specified time, then the investment manager shall pay interest to the unit holders at the rate of fifteen percent per annum, till such allotment or listing or refund and such interest shall be not be recovered in the form of fees or any other form payable to the investment manager by the InvIT;
units may be offered for sale to public,-
(i) if such units have been held by the sellers for a period of at least one year prior to the filing of draft offer document with SEBI. However, the holding period for the equity shares or partnership interest in the holdco or SPV against which such units have been received shall be considered for the purpose of calculation of one year period;
(ii) subject to other guidelines as may be specified by SEBI in this regard;
- The amount for general purposes, as mentioned in objects of the issue in the draft offer document filed with SEBI, shall not exceed 10% of the amount raised by the InvIT by issuance of units.
- Offer document or Placement memorandum and advertisements [Regulation 15]
Question 9.
What are the requirements for offer document or placement memorandum and its advertisements by the InvIT?
Answer:
The requirements for offer document or placement memorandum of the InvIT and its advertisements are given under Regulation 15, which are as:
- The offer document or placement memorandum of the InvlT shall contain material, true, correct and adequate disclosures to enable the investors to make an informed decision.
- Without prejudice to the generality of point (1) above, the offer document or placement memorandum:
- a. Not be misleading and not contain any untrue statements or misstatements;
b. not provide for any guaranteed returns to the investors;
c. include such other disclosures as may be specified by SEBI - The offer document and placement memorandum shall include all information as specified under Schedule III of these regulations.
- No advertisement shall be issued pertaining to issue of units by an InvIT which makes a private placement of its units.
- With respect to advertisements pertaining to the offer of units than InvIT with respect to public issue of its units,:
(a) such advertisement material shall not be misleading and shall not contain anything extraneous to the contents of the offer document;
(b) if an advertisement contains positive highlights, it shall also contain’ risk factors with equal importance in aspects including print size;
(c) the advertisements shall be in accordance with any circulars or guidelines as may be specified by SEBI in this regard.
Listing and trading of units [Regulation 16]
Question 10.
What are the requirements for listing and trading of units InvIT?
Answer:
(a) It shall be mandatory for units of all InviTs to be listed on a recognized stock exchange having nationwide trading terminals, whether publicly issued or privately placed.
However, this sub-regulation shall not apply if the initial offer does not satisfy the minimum subscription amount or the minimum number of subscribers under these regulations.
(b) The listing of the units shall be in accordance with the listing agreement entered into between the InvIT and the designated stock exchanges.
(c) In the event of non-receipt of listing permission from the stock exchange(s) or withdrawal of Observation Letter issued by the Board, wherever applicable, the units shall not be eligible for listing and the InvIT shall be liable to refund the subscription monies, if any, to the respective allottees immediately along with interest at the rate of 15% annum from the date of allotment.
(d) The units of the InvIT listed in the designated stock exchanges shall be traded, cleared and settled in accordance with the bye-laws of designated stock exchanges and such conditions as may be specified by SEBI.
(e) The InvIT shall redeem units only by way of a buyback or at the time of delisting of units.
(f) The units shall remain listed on the designated Stock Exchanges unless delisted under these regulations.
(g) The minimum public holding for the units of the InvIT after listing shall
be, in accordance with sub-regulation (1 A) of issue of units and allotment failing which action may be taken as may be specified by SEBI and by the designated stock exchanges including delisting of units under these regulations.
(h) The minimum number of unit holders in an InvIT other than the sponsor, its related parties and its associate(s),:
in case of privately placed InvIT, shall be five, each holding not more than 25% of the units of the InvIT;
forming part of public shall be twenty, each holding not more than 25% of the units of the InvIT, at all times post listing of the units, failing which action may be taken as may be specified by SEBI and by the designated stock exchanges including delisting of units under these regulations.
(i) With respect to listing of privately placed units,:
its units shall be mandatorily listed on the designated stock exchange(s) within 12 working days from the date of allotment. However, this sub-regulation shall not apply if the initial offer does not satisfy the minimum subscription amount or the minimum number of subscribers as prescribed in these regulations.
trading lot for the purpose of trading of units on the designated stock exchange shall be five lakh rupees.
(j) With respect to listing of publicly offered units,:
Its units shall be mandatorily listed on the designated stock exchange(s) within 12 working days from the date of closure of the initial public offer. This sub-regulation shall not apply if the initial public offer does not satisfy the minimum subscription amount or the minimum number of subscribers as prescribed in these regulations.
Trading lot for the purpose of trading of units on the designated stock exchange shall be five lakh rupees.
(k) Any person other than the sponsor(s) holding units of the InvIT prior to initial offer shall hold the units for a period of not less than one year from the date of listing of the units.
(l) SEBI and designated stock exchanges may specify any other requirements pertaining to listing and trading of units of the InvIT by issuance of guidelines or circulars.
Infrastructure Investment Trusts Notes
1. Introduction of Regulation
- SEBI notified Infrastructure Investment Trusts Regulations, to encourage and invests in infrastructure projects only directly or through Special Purpose Vehicles.
- The name of the Regulation is SEBI (Infrastructure Investment Trusts) Regulations, 2014.
2. Definition of Infrastructure Investment Trusts (InvIT)
- InvIT shall mean the trust registered as such under these regulations.
3. Parties in InvIT
- It shall have parties such as Trustee, Sponsor(s) and Investment Manager.
- Rights and Responsibilities of Parties to the InvIT, Valuer and Auditor shall be governed by SEBI (Infrastructure Investment Trusts) Regulations, 2014.
4. Mode of raising of capital
- The InvITs can raise capital from both domestic and foreign investors. Raising capital from foreign investor pursuant to initial offer of units or follow-on offer can be made.
5. Requirement for offer documents and placement memorandum
- The offer document or placement memorandum of the InvIT shall contain material, true, correct and adequate disclosures to enable the investors to make an informed decision.
6. Requirement for advertisement of offer document
- The advertisements shall be in accordance with the offer document and any circulars or guidelines as may be specified by SEBI in this regard.
7. Reporting by Investment Manager
The Investment Manager shall submit to the trustee, quarterly reports on the activities of the InvIT including receipts for all funds received by it and for all payments made, position on compliance with these regulations, specifically compliance with investment conditions, related parties transactions and borrowing and deferred payments, performance report, status of development of under-construction projects, within 30 days of end of such quarter.
8. Submission of valuation report
- The Investment Manager shall submit valuation reports received to the designated stock exchanges within 15 days from the receipt of such valuation reports.
9. Maintenance of records
- The records may be maintained in physical or electronic form. However, if records are maintained in electronic form it shall be digitally signed.
10. Actions for contraventions
An InvIT or parties to the InvIT or any other person involved in the activity of the InvIT who contravenes any of the provisions of the Act or these regulations or notifications, guidelines, circulars or instructions issued there under by SEBI shall be liable for one or more actions specified therein including any action provided under SEBI (Intermediaries) Regulations, 2008.
11. Concession Agreement
- An agreement entered into by a person with a concessioning authority for the purpose of implementation of the project as provided in the agreement.
12. IMA
- Investment management agreement is an agreement between the trustee and the investment manager which lays down the roles and responsibilities of the manager towards the InvIT.
13. ROFR
- “Right-Of-First-Refusal“ of a REIT means the right given to the REIT by a person to enter into a transaction with it before the person is entitled to enter that transaction with any other party.